European protectionism

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Blackleaf 1

Noel Malcolm is a political columnist for London's The Daily Telegraph. His most recent books are Kosovo: A Short History (1999) and Bosnia: A Short History (1996)....blah, blah,

The book where I get my ammunition to attack "Europe" is Euro-Skepticism: A Reader, edited by Ronald Tiersky.

On French protectionism in agriculture:

Quote:

The economic project embodied in the European Economic Community (EEC) was a true reflection of its origins in a piece of Franco-German bargaining. German industry was given the opportunity to flood other member states with its exports, thanks to a set of rules designed to eliminate artificial barriers to competition and trade within the "common market." France on the other hand, was given an elaborate system of protection for its agriculture, the so-called Common Agriculture Policy.

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On that slender basis, France established one of the most complex and expensive systems of agricultural protectionism in human history. It is based on high external tariffs, high export subsidies, and internal price support by means of intervention buying (the most costly system of price support yet invented, since it involves collecting and storing tens of milions of tons of excess produce).

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Thanks to this policy, a European family of four now pays more than $1,600 a year in additional food costs - a hidden tax greater than the poll tax that brought rioters out onto the streets of London.

Although it would be unfair to describe the EC as behaving like a "Fortress Europe" (so far), it is nevertheless true that "Europe" has evolved an elaborate system of tariffs and discriminatory trading agreeements to protect its sensitive industries. Agriculture has the highest tariffs; ranging from below it are such products as steel, textiles, clothing and footwear (as Poland, Hungary, and Czech Republic have discovered to their dismay - food, steel, textiles, clothing and footwear being their own most important products). The EC has been at the forefron in developing so-called voluntary export restraints with countries such as Japan. In addition, "Europe" has shown extraordinary ingenuity in adapting the GATT's "antidumping" measures to block the flow of innumerable imports: electronic typewriters, hydraulic excavators, dot-matrix printers, audiocassettes, and halogen lights from Japan; compact disc players from Japan and Korea; small-screen color televisions from Korea, China and Hong and so on.

A recent study of EC trade policy by L.A. Winters uses the phrase "managed liberalization" to describe the EC's foot-dragging progress toward freer trade. "Managed liberalization," notes Winters, "is a substitute for genuine liberalization, but a poor one, because it most typically attenuates competition in precisely those sectors which are most in need of improved efficiency." Nor is this surprising, since the trade policy emerges from a system of political bargainning in which the government of the EC member states compete to protect their favorite industries. Massive state subsidies to flagship enterpreses (French car manufacturers, Spanish steel mills, Belgian and Greek national airlines) are common practice. In addition, the officials at the European COmmission in Brussels are strongly influenced by the French dirgiste tradition, which sees it as the role of the state to select and nurture special "champion" industries. In practice, this means spending millions of taxpayers' dollars developing Fernch microchips that will never compete with East Asian ones on the open market.

Inside the tariff wall, a kind of free trade area has indeed been created. Many obstacles to trade have been removed (though important barriers remain in the realm of services, as British insurance firms are still discovering when they break into the German market), and industry as a whole has benefitted from this process of internal liberalization. However, the long-term effects may be more harmful than beneficial. In their attempt to create a level playing field for competition on more equal terms within the EC, the administrators of "Europe" have leveled up, not down. They have tried to raise both the standards and the costs of industry throughout the community to the high levels practiced in Europe's foremost industrial country, Germany. When this process is complete, industrialists inside the EC may indeed sell goods to one another on equal terms, but their goods will all be uncompetitive on the world market.

This levelling up occurs in two areas. The first is the harmonization of standards. Brussels has issued a mass of regulations laying down the most minute specification for industrial products and processes; the dominant influence on thise has been the German institute for Norms, which has the strictest standards in Europe. Harmonization is meant to simplify matters for producers, who now have only one standard within the EC instead of various national one. But in many cases, as the task of matching product to standard becomes relatively simpler, it is also made more expensive. IN addition, the EC has powers relating to environmental protection and health and safety at work, which are increasingly used to impose German-style costs on industries and services. The costs fall especially heavily on small enterprises, which have to pay disproportionately for monitoring equipment, inspection and certification. This distorts the market in favor of large corporations, penalizing the small enterprises that are the seed corn of any growing economy.

The second way in which the playing field is leveled up to German standards is in the social costs of labor. German employers pay heavily for the privileges of giving people jobs: there are generous pension schemes to pay for health insurance, long holidays, maternity and paternity leave, and other forms of social insurance. As a consequence, labor costs are $25 per hour in former West Germany (the highest in the world), as opposed to $17 in Japann, $16 in the United States, and $12 in the United Kingdom. German work practices mean that a machine in a German factory operates an average of only 53 hours a week, as opposed to 69 hours in France and 76 hours in Britain. And the average worker in Germany spends only 1,506 hours each year actually at work, as opposed to 1,635 hours in Britain, 1,847 in the United States, and 2,165 in Japan.

Over the last five years, the European Commission has proposed a whole range of measures to increase the rights of workers and limit their working hours. When measures in this so-called social action program could not gain the required unanimous support from member states (notably Britain), they dressed up as health and safety matters, for which only a majority vote is required. Further costs on employers were imposed by a "social protocol" added to the Maastricht treaty. Although Britain was able to gain a special exemption from this agreement, it is likely that many of the new measures adopted under the protocol eventually will filter back to Britain through other parts of the "European" administrative machine.

Some of these measures are inspired, no doubt, by concern for the plight of the poorest workers in the community's southern member states. But the general aim of the policy is clearly to protect the high-labor-cost economies (above all, Germany) from competitors employing cheap labor. In the short or medium term, this policy will damage the economies of the poor countries, which will have arificially high labor costs imposed on them. In the long term, it will harm Germany, too, by reducing its incentive to adapt to worldwide competition. "Europe," whose share of world trade and relative rate of economic growth are already in decline, will enter the next century stumbling under the weight of its own costs like a wooly mammoth sinking into a melting tundra.

Hitherto, changes in the values of their national currencies have been one of the essential ways in which the relative strengths and weaknesses of those countries were both expressed and adjusted. With that mechanism gone, other forms of expression will operate, such as the collapse of industries or the mass migration of labor.

The European Commission understands this problem and has a ready solution: massive transfers of money to the weaker economies of "Europe." The machinery to adminster this huge program of subsidies is already in place, in the form of regional funds, "structural" funds, and "cohesion payments." All that is lacking so far is the actual money, for which the purpose the outgoing president of the European Commission, Jacques Delors, recently proposed increasing the European budget by more than $150 billion over the next five years.

A model for the future of an economically united Europe can be found in modern Italy, which united the prosperous, advanced provinces of the north with the Third World poverty of the south. After more than a century of political and economic union, huge disparities still remain between the two halves of Italy - despite (or indeed partly because of) all the subsidies that are poured into the south via institutions such as the Cassa del Mezzogiorno, the independent society established by the Italian government to help develop the south. As southern Italians have had the opportunity to discover, an economy based on subsidies uniteds the inefficiency of state planning with almost limitless opportunities for graft and corruption. It is a sad irony that today, just as the leaders of "Europe" are preparing for unification, the politicians of Italy are seriously considering dismantling their country into two or three separate states.